PAUL TAGGART
For every piece of State meddling in the economy, there are consequences; and not always what was intended.
From the major interferences, such as the Think Big projects, to the smallest, such as the decision to allow Post Shops to sell magazines, there is an impact.
Think Big distorted the country's economy and blew the budget with disastrous consequences, while Post Shops' competition with privately owned businesses can be serious for dairy owners who lose trade to a taxpayer-backed neighbour.
Then there's taxation - cranking it up should increase revenue, but often results in high-income earners leaving the country and a lower level of entrepreneurship than otherwise would have been the case, resulting in lower, not higher revenue.
The present government has set its sights on intervening in the housing market, with plans to assist lower-income families into their own homes as part of next year's budget.
The sentiment is admirable. However, there is a certain irony that one of the major causes of the problem was itself government policy - immigration rule changes that resulted in a flood of Asian immigration and an overheated housing market.
One of the ideas that has been floated is to allow families to capitalise State assistance that a family may be entitled to in the future to give them a $30,000 to $50,000 deposit on a home.
But if the family no longer needs State assistance due to a change of circumstances after they have bought their house, the lump sum is basically a taxpayer gift. Some New Zealanders will be entitled to this hand-out, while others won't.
And if the assisted house-owners can survive quite happily without their on-going State assistance, as it has been capitalised to put a deposit on a house, why were they entitled to it in the first place?
That aside, there are numerous distortions that could occur in the economy if the Government starts doling out money to potential house buyers, the most obvious being an increase in lower-end property prices as more buyers chase the same number of homes. This would hurt those who are not entitled to benefits, but still want to own their own home.
The rental market could also be deflated.
And with interest rates on the up, and house prices appearing to have peaked, it is not inconceivable that some of those "helped" by the Government could end up with negative equity, or mortgages they could no longer pay.
The Government's idea has some merit, but it would be good if whatever scheme they hatch up ends up having more positives than pitfalls.
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